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BSE Sensex falls more than 500 pts on Fed; flows key

Mumbai, Jun 20, 2013, Reuters :

Nifty dips 2.86 per cent, ends at 5,656 pts

The BSE Sensex fell more than 2 per cent on Thursday, the most in a day in nearly 21 months as blue chips such as Reliance Industries slumped after the US Federal Reserve signalled a tapering of its monetary stimulus, stoking fears of portfolio outflows.

Emerging markets, many of which have been primed by easy Fed money, saw some of the biggest selling as investors rushed to the exits. MSCI's benchmark index for emerging equities slumped by more than 3 percent.

The rupee hit an all-time low against the US dollar, prompting Reserve Bank of India intervention and highlighting the country's dependence on foreign capital inflows to fund its current account deficit.

FIIs have been sellers in index futures for the past 13 out of 14 sessions, totalling Rs 8,846 crore. They have also sold cash shares for seven straight sessions, totalling Rs 3,941 crore as per exchange and regulatory data.

"The reaction to Fed is exaggerated, outflows may happen but with the rupee so cheap it may be time for new money to also come in," said Paras Adenwala, managing director and principal portfolio manager at Capital Portfolio Advisors. Sentiment was also fragile after China's factory activity weakened to a nine-month low in June as demand faltered, a preliminary survey showed, heightening risks that a second quarter slowdown could be sharper than expected.

The BSE Sensex slumped 2.74 per cent, or 526.41 points, to end at 18,719.29, to mark its lowest close since April 15.

The broader Nifty fell 2.86 per cent, or 166.35 points, to end at 5,655.90. It earlier fell as much as 3.03 percent.

Blue chip stocks such as Reliance Industries Ltd fell 4.05 per cent, while cigarette-maker ITC Ltd ended 2.18 per cent lower. Shares of large-cap private banks also fell as traders fear that the high foreign holding in these stocks makes them more vulnerable to a sell-off after the Fed decision.

ICICI Bank, with 37.94 per cent FII holding, fell 3.7 per cent, while HDFC Bank, where FIIs hold 34.07 per cent of total shares, slumped 4.3 per cent.

Traders worry that an end to the U.S. monetary stimulus could lead to portfolio outflows, pushing the rupee lower and, in turn, delaying any rate cuts from the central bank.

Among other interest-rate sensitive stocks, DLF slumped 7.2 per cent, while Unitech Ltd dropped 5.4 per cent. Auto makers also fell, with Maruti Suzuki India Ltd down 1.2 per cent and Mahindra and Mahindra Ltd ending 3.8 per cent lower.